In 1978 University of Illinois professor F. W. Lancaster predicted a paperless society by the end of the 20th century. That hasn’t happened; we are drowning in forms, both paper and digital. We are making progress with e-documents and online forms, but information overload is spreading no matter the format. Lost in the clutter may be a clear picture of your estate plan. According to a survey by online legal service Rocket Lawyer, 41% of aging Baby Boomers do not have a will. (USA Today, 4/30/12). If you are among the 59% who do, have you read it lately? Do you know where it is? If data is in the cloud, who has your passwords if something happens to you?
A will is not a complete estate plan. Through a probate process, a will governs distribution of property not specifically designated as to disposition. If you specify who gets what by virtue of titling, a beneficiary designation, or a revocable living trust or other type of trust, that asset is not subject to the will. For example with a joint account, joint tenants with right of survivorship (JTWROS) transfers the asset to the surviving person named, say, a spouse or adult child. Likewise, a Transfer On Death (TOD) registration allows one to pass securities or other assets directly to another person or entity (the named "TOD beneficiary") upon death of the owner without having to go through probate.
If you name a person (or persons) as a beneficiary on a life insurance or annuity contract, the death benefit passes to the beneficiaries outside of the will. Retirement plan assets, a 401(k) or IRA account, for example, pass to named person beneficiaries directly outside of probate. Jointly-held assets, insurance and retirement assets, can be a significant part of a person’s net worth. Consequently, a good portion of a person’s material worth may not be subject to the will. The estate plan that you actually have may be far different from the one that you think you have. A common mistake is not sitting down and looking at your holdings from a holistic standpoint and reviewing titling, beneficiary designations, trust language if you have established a trust, and the will. You accumulate “stuff” over time and do not relate scattered assets to an overall plan.
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After a divorce, did you revoke the old will that favored your ex? If married for the first or second time, did you write a new will? Are people who are deceased, physically or mentally impaired, or estranged, named as a beneficiary somewhere? These are not uncommon occurrences!
As the Age Wave tsunami rolls on, we see increasing instances of a spouse or other loved one diagnosed with a significant impairment—dementia or some other degenerative condition. If he or she is a beneficiary on a retirement account or a life insurance policy, trust planning is imperative as they may not be able to deal with money left to them directly.
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Naming special needs minors or adults as beneficiaries presents major problems, especially if they need or are expected to need government benefits. Certain types of special needs trusts are called for. Parents of special needs children need advice on special needs planning.
Naming any minor as a beneficiary presents problems as they cannot receive money directly. Again, trust planning is needed.
Another error is failing to name a “contingent beneficiary” in case the primary beneficiary does not survive the owner. Periodically, you should review and update all of your beneficiary designations. Should someone be added? Deleted? Have relationships changed?
Naming your “estate” as a contingent beneficiary on your retirement plans may be a mistake. You should list named persons so they can take advantage of IRA
“stretch out” provisions as an Inherited IRA. The beneficiary may stretch distributions over his or her lifetime preventing significant tax erosion.
A comprehensive estate plan insures that wills, trusts, ownership forms, and beneficiary designations are in sync with your wishes. Is your plan up-to-date?
Lewis Walker is President of Walker Capital Management LLC. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with the Walker Capital Companies. ▪ 3930 East Jones Bridge Road ▪ Suite 150 ▪ Peachtree Corners, GA 30092 ▪ 770-441-2603 ▪ lewisw@theinvestmentcoach.com